Reliance Power Crashed 8% before the record date on June 2nd.High Volatility was witnessed in the stock thru out the trading day.There was utter confusion over the price adjustment and the stock slided to 231.Had the price not moved up before the record date, the share would have plunged even more after the bonus. If the price goes up before bonus, it will be adjusted after the bonus," said a brokerFor the retail inavestors who bought at the IPO price of Rs 430, the average price after bonus would have been around Rs 270 a share.

However, the stock is down around 8 per cent from its IPO price. The retail investors who could not exit above Rs 270 have ended up losing over 20 per cent. A mere 10,000 shares were traded above Rs 300 during the day

Sensex closed with a gain of just 99 points.Market breadth continues to be negative.Sustained selling was seen in the midcap segment.The market breadth was negative - out of 2,767 stocks traded, 1,008 advanced, 1,701 declined and 58 were unchanged today.The NSE Nifty finished with a gain of 35 points at 4,870.What to Expect Next WeekThe Nse Nifty is expected to find strong support at 4825 and resistance at 4920.Exit longs below 4825.Fresh buying is not happening in the market and we expect volumes to be thin.

We expect the Nifty future to witness significant volatility in the forthcoming week. As we have always maintained, the Nifty future faces a strong resistance at 5350, a level it failed to breach last week also. It is now loitering precariously close to its support at 4950. Failure to sustain at this level will take Nifty future to its next crucial support at 4400. However, any reversal from the current level holds the potential to take Nifty future first to 5150 and then to 5350 levels. However, for the overall negative bias to lift, Nifty future has to make a decisive move above 5850, failing which the probability to revisit its January lows looms large.Since we are now approaching the settlement week for the current month derivatives contracts, volatility is sure to make its presence felt. The risk-return payoff during such volatile times, more often than not, favours the use of straddles. Traders can consider setting a straddle for Nifty. You can do this by buying Nifty 5000-June strikes for both call and put options. Note that this is a good strategy when you feel that there will be a large price movement in Nifty in the near future but are unsure of which way that price movement will be. The premium paid for setting this option spread is the maximum loss you can suffer while the gains can be unlimited should the price move sharply in one direction. Nifty 5000 call on Friday closed at Rs 150.70 and the put ended at Rs 214.65. Traders can consider holding this strategy beyond this week

Redington India Target 445According to the brokerage estimates, Redington is “setting up four automated distribution centres in India and one abroad”. The move into high-end repair activities should sustain the growth of high margin service segment, it adds. Meanwhile, enhanced infrastructure base, feels the brokerage, would help the company “capitalise on ro-bust domestic market and increase its market share”.

VOLTAMP TRANSFORMERS Target 1650Voltamp’s order book stands at Rs 4.48 billion,” says a report, adding that “its order book was flat at Rs 4.07 billion” for the quarter ended March 31. According to the brokerage, the company will undertake capital expenditure of Rs 350 million for a greenfield project, wherein oil type and dry type transformers will be manufactured.

PUNJAB NATIONAL BANK TARGET 700Merrill Lynch has cut its price target for Punjab National Bank (PNB) to Rs 700 from Rs 825 to factor in earnings moderation led by pressure on margins and higher provisions from wage revisions. However, the investment bank has raised its earnings estimates by 1-4% for 2009-10. “We believe the stock could trade at 1.4-1.5 times by FY10 (2009-10) given its forecast ROE(return on equity) of 17-18%, earnings growth of 18% through FY10E (estimated), improved quality of earnings arising from lower trading profits and lower risk from interest rate changes,” Merrill said in a recent client note. “On a PE (price to earnings) basis we believe the bank can continue to trade at least at 7.5-8.0x FY10E (estimated) earnings, as banks’ net NPLs (non-performing loans) shrink,” the investment bank said

Stocks in India ended in negative territory Thursday on weak cues from Asian and European markets and pressured mainly by record high crude oil prices.Of the 50 shares comprising the Nifty, only five--Dr Reddy’s, Sterlite Industries, Hero Honda, GAIL, and Hindalco--held their ground.

Nifty May futures contract price slipped 2 per cent and giving up its 10 points premium from Wednesday. Nifty June ended at 5023, a discount of 4 points to the spot.

Huge build up of positions was witnessed in Nifty 5000 call. Call of 5100 May and 5200 June also added positions in open interest. Nifty puts of strikes 4900 and 5100 shed positions, while 4800 put saw significant build up of positions. This indicates a broad Nifty zone of 4800-5200. if global cues remain weak, Nifty may touch 4950 levels. On the upside, 5150 will be a strong resistance for the Nifty.

Sail, Sun Pharma, South Indian Bank, IVRCL Infra and Petronet LNG are looking very strong. Sail has to break above 192 to 200 levels due to short covering. IVRCL has strong support at 432 and last resistance is at 444; above this it will move up towards 456 levels. South Indian Bank is the dark horse with a target of 168 in the short run.

It was a low volatility week when trading patterns ran contrary to macro-economic trends. Although inflation continued to soar, stock prices also rose and the action in the derivatives market reflected some of the (possibly misplaced) optimism.

Index strategiesVolumes remained average in the F&O market but there was healthy carryover and OI build up. There was some evidence that Indian operators were in the market, given that the level of FII exposure stayed at around 40 per cent of total outstandings.

Range-bound markets have certain characteristics. Typically, cash volumes are low, daily volatility drops and this is reflected in lower implied volatility in derivatives. The lower IV in turn creates a trap because a breakout changes all the variables. As volatility jumps, the unwary get clobbered.

The VIX suggests that aggregate market expectation is that range-trading will continue. At Nifty 5300-levels two weeks ago, the VIX was trading at about 21 – an all-time low. At the current Nifty 5150-odd, it is 23, which one would still consider overbought. A low VIX implies that the market does not expect a breakout, at least on the downside.

This could be very dangerous. There's still two weeks for settlement and expectations of continued range-trading are reflected in option chains and high carryover volumes.

In the option chain, there is zero liquidity above 5500 and calls are being extinguished above 5400. On the downside, puts have been extinguished at a loss in the 4700-4900 range.

This is unusual and even irrational. The Nifty frequently swings 2.5-3 per cent per session if you look at average long-term volatility. That's 150-175 points – and losses are being booked in positions 250 points from money with 10 sessions to go.

Overall OI has risen and it's heavily concentrated in the 5000-5300 range. What is more, approximately 32 per cent of all option OI is in the June-July series. This is high carryover – two weeks from settlement, the mid+far contracts would normally generate about 15 per cent OI. The mid+far OI is also concentrated in the 4900-5400 range, implying few bets on a breakout.

Usually the market breaks out of range-trading within 3-4 weeks or so, and daily volatility is guaranteed to rise when it does. As and when there is a breakout, a lot of traders are going to play a frantic game of catch-up. It will be especially entertaining if this happens in settlement week.

In such a situation, the option trader can adopt two strategies. One is to go with the herd and add an element of safety through covered spreads close to money. As it happens, both bullspreads and bearspreads CTM are offering reasonable return:risk ratios.

The other possibility is more daring. The trader can look for wide straddles and strangles that don't cost much and offer big gains in case of a breakout. Here the lack of liquidity and the expiry factor makes that more expensive. It isn't possible to build short strangles very far from money. But the positions are still worth considering.

Of course, the vast majority of traders are actually in naked index futures rather than options. The technical situation in the index futures market is difficult to read. Only the Nifty and MiniNifty have decent liquidity in the mid and far contracts. There are no calendar arbitrages available and there is a reasonable carryover trend. The low VIX makes me inclined to suggest short positions.

In the other indices, the Junior's May futures was settled at 9046.5 while the spot closed at 9014.9. The BankNifty was settled at 7606.7while the spot closed at 7644.6. The CNXIT was settled at 4543.5 while the spot closed at 4552.65. The Midcap-50 was settled at 2754.65 while the spot closed at 2746.85.

The BankNifty has seen short-covering late on Friday and if this pattern continues, it's worth being long. The CNXIT has responded positively to a weak rupee. A rupee rise is now on the cards because the RBI may intervene to reduce the impact of high crude prices. So a short CNXIT seems slightly more likely to work.

In the Nifty options market, a long 5200c (60) versus short 5300c (26.95) costs 33 and offers a maximum return of 67. A bearspread with long 5100p (63.35) versus short 5000c (38.15) costs about 25 and offers a maximum return of 75. Both are very decent risk:return ratios.

A long strangle of long 5300c and long 5000p costs 65. This can be laid off with a short 4800p (14) and a short 5500c (6.35). That reduces the cost to 44 and the potential return on either breakout is 156. That's a pretty good return:risk ratio though there is an expiry risk. The position would be fully realised if the market moves 350 points in either direction. That requires two big trending sessions within the next 10.

STOCK FUTURES/OPTIONS

There are several stocks that are generating high futures volumes and therefore worth a careful look. Cairn is one of these, SAIL is another and a third is HDIL.

SAIL is also generating a lot of volume in the 180c and that is very unusual. RCom (about 602 in both futures and spot) is also generating high futures volume which is usual. It is also generating high volume in 600c (14.8).

SAIL is at about 186 in both cash and futures and the 180c last traded at 10 while the 190c was at 5. A long SAIL futures will probably generate more profit than a long call but a bullspread is also possible. It's in the money at current prices (which means that both 180c and 190c will rise).

The Nifty closed in the green with a gain of 3.5 %, on a weekly basis, after some zigzag trades in the first three days. The next week contains four trading days only. The Nifty opened at 4,981 and made a low of 4,913.80. The Nifty attained a high of 5,167.40 and closed almost near to the high, at 4,157.70. The stock specific action was also part and parcel of the week. Volumes improved gradually in all segments. The concern is that the Nifty May Futures traded continuously with discount and widened to double digit, which is indication of continuous built up of short positions.We mentioned in the last week`s write up 4,916 is likely to be a good support. The Nifty touched 4,913.80 and reversed its direction. The Nifty is expected to make once again an attempt to breach the long-term averages like 100 and 200 day SMA. The success of the attempt will make the Nifty to move in northward direction further. The Nifty crossed 5, 10 and 20 day SMA comfortably and closed well above these averages. The 5-day SMA turned upwards, which is a positive sign. The 10-day SMA is testing the support at 20 day SMA. The Nifty closed above the crucial 13,34 and 89 EMA. Both the stochastic are in the buy mode. However, the 5,3,3 stochastic is nearing to the overbought level. The RSI once again generated a fresh buy signal. The swing trade turns to positive side from the negative side. The ADX is in buy mode. All these indicate there is no major threat to the prevailing short-term bull trend. The higher bottom formation also supports this view. The PSAR in the daily charts is placed at 5,167.40.The MACD is converging to generate a fresh buy signal. Further up move, if any and the cross over happened in the above both cases, will add strength to the ensuing rally.

So far, the Nifty is forming a lower top and higher bottom formation since the January, 08 fall. The break out on either side will be more powerful. As mentioned, the Nifty had a good support at 4,916 (with 1% variation) on many fronts. (The 50-day SMA, the trend line support drawn from the March 2008 low, 0.382 retracement support (from 4,468 and 5,299) Interestingly, the pattern is same as in October 2004, on many fronts. The previous pattern formation is also supporting the above statement.

In the weekly charts, still we are in amidst of mixed signals. The 5,3,3 stochastic is in sell mode and breached the 80 mark also. The swing trade became neutral now. The ADX is in sell mode. The RSI is in buy mode. The MACD is converging to generate a fresh buy signal (Kindly note that the same scenario on daily charts also). If both things happen, the rally should be more powerful and the medium term outlook too becomes bullish. The medium term trend is neutral, with a slighter probability of becoming bullish.

In the monthly charts, the MACD is in a sell mode. However, the bottom of 4,448 is becoming a strong support. Any decisive breach, will initiate a fresh down movement. The 20-month SMA is giving a good support since May 30, 2003 on a closing basis, which is currently placed at 4,662.59.In the quarterly charts, since October 2003, the Nifty is trading above PSAR. For this quarter it is placed at 4,448.50.

Outlook for the week

Short term bullish trend to continue with intermediate resistance around 5,400 level. Based on the above rationale, the Nifty is expected to see some more upside in the short term. On many fronts, the Nifty is near to the multiple resistance levels near to 5,400 levels. For this week, the Nifty has support at 5,126, 5,072-5,099 (strong for the short term), 4,952 and 4,901 (multiple support level). The Nifty has resistances at 5,167.40 (PSAR and may be a break out point), 5,195-5,228 (minor resistance), 5,247 (trend line), 5,298, 5,368 and 5,395-5,415 (intermediate resistance).

TATA MetaliksBuy for a target of 225 stop 166Tata Metaliks Ltd has informed that the Company has been actively pursuing to tie-up with various State Governments for raw material linkages. Further to these efforts of the Company, Tata Metaliks is keen to acquire iron ore mining lease in Karnataka and also to put up an end use plant. AXIS BANKSTRONG BUY CALL TARGET 1215.